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October 2016

Next year marks 100 years since Finland became an independent nation. As planning progresses for a host of celebrations a subtle tug of war is taking place over the shape of the nation’s future.

The catalyst for self-analysis has been the stubbornness of the recession. Prime minister Juha Sipilä has staked significant political capital on persuading Finland’s trade unions to accept his “competitiveness pact” in order to boost productivity in the manufacturing sector. However the belief is growing that it is to private-sector entrepreneurialism that Finland must now turn. “Future growth will come from information-intensive services and technology,” says Matti Pohjola, professor of economics at Aalto University. “But rural areas are dependant on the old industrial structure. It is a difficult political problem, especially for the Centre party, whose support is based on such areas.”

The debate is about more than simply economics. Immigration, an ageing population and the divide between a thriving Helsinki and a remote rural populace: each is a key issue as the country chooses between nostalgic, introverted protectionism and a globalised, deregulated, digital economy. Characteristically Finland is attempting to navigate a middle way. If the country’s first 100 years are anything to go by you wouldn’t bet against it forging a pragmatic solution.

Leader’s performance

Following his election in April 2015, IT millionaire Juha Sipilä received widespread international praise when he promised to open his own home to refugees. But such statements were not so popular at home, where immigration remains a controversial issue.

Since then Sipilä has chosen his battles carefully. After drawn-out negotiations and several strikes his competitiveness pact looks likely to improve exports by lowering labour costs. But even bigger challenges lie ahead: he has pledged to implement sweeping reforms to health and social care (Sote). “If the competitiveness pact was big then Sote is even bigger,” says journalist and broadcaster Salla Vuorikoski. “This will be the major test for Sipilä’s government.”

Foreign policy

The central question in Finnish foreign policy concerns membership of Nato. Finland may face west culturally but it shares a 1,340km border with Russia. Dependent on Russia for gas and passage to Asia through Russian airspace,
it is in a fix.

In light of Vladimir Putin’s actions in Ukraine, the subject of Nato is once again being debated with intensity. The National Coalition party has committed to applying for membership and Finland participated in June’s Baltops military exercises. Yet when Russia expressed disapproval, foreign minister Timo Soini rushed to explain that Finland taking part was based solely on defence interests.

Meanwhile one of Sipilä’s first acts as prime minister was to announce cuts in aid spending. The draft figure for 2016 is €300m less than last year. Resources have been transferred to FinnFund, which finances business-related activities in developing countries. This is a significant shift in foreign policy for a country known for championing international aid.

State of the economy

The economy remains Finland’s biggest challenge. State debt has grown to more than 60 per cent of GDP and in June Finland lost its last triple-A credit rating as Moody’s announced its downgrade. The collapse of Nokia, sanctions against Russia and sluggish growth in traditional export industries (paper, pulp and metal) have all played their part.

Though the causes of Finland’s financial difficulties are not in doubt, the solutions are far less clear. But consensus is growing that the state must do more to foster entrepreneurship. In 2017, universal basic income experiments are planned
to begin; whatever the results, it shows that Sipilä’s government is willing to innovate.

Technology

During the past 15 years Finland’s ICT sector accounted for half of the growth in labour productivity. The collapse of Nokia changed everything but Finland’s start-up landscape has now begun to blossom. The hope is that the “industrial internet” will combine Finland’s strengths in both manufacturing and information services.

Forestry

In recent years this traditional bulwark of the Finnish economy has taken multiple hits: from the banking crash of 2008; from cheaper Russian and Chinese exports; and even (according to then prime minister Alexander Stubb) from the popularity of the iPad. Statistically the metal industry may be larger but, with three quarters of Finland’s 31 million hectares covered by woodland, forestry remains its most culturally significant.

View from Finland

“Many in Finland are still unable to see how dramatically the world has changed. We need to get some of the energy and entrepreneurial spirit from the start-up world to spread to other parts of society.”Christina Dahlblom, managing director, Miltton

“The National Coalition party’s voting out of Alexander Stubb as leader was symbolic. Government policy will not change much but in choosing a very traditional Finnish man – Petteri Orpo – instead, it seems to be closing up. Finland has lost a bit of its cosmopolitan mood.”Iivi Anna Masso, political analyst

“The cuts to humanitarian aid and international-development funding don’t help Finland to establish its standing globally. This will hurt Finland in the long run, especially compared with other Nordic countries that are more international.”Aleksi Neuvonen, co-founder of Demos Helsinki think tank

Soft-power credentials

Tom of Finland
The bulging muscles illustrated by artist Touko Valio Laaksonen (better known as Tom of Finland) are instantly recognisable for their vivaciousness. His work has been celebrated in museums worldwide, as well as on wildly popular stamps issued by the Finnish postal service. Finland is rightly proud of this mix of creativity and liberal social principles.

Education
Finland’s education system is one of the best in the world. By fostering a collaborative atmosphere it has consistently featured in the top-ranked OECD countries. The new “phenomenon-based” curriculum, which includes computer programming, has garnered global attention.

Moomins
Last year’s Moomins on the Riviera marked 70 years of Tove Jansson’s fairytale eccentrics. The books have been translated into more than 40 languages and the “Moomin boom” shows no sign of waning.

What needs fixing

Immigration
In a country that has fought to forge a strong sense of national identity, immigration is a touchy subject for conservatives and liberals alike. But with an ageing population and question marks over productivity, it’s time Finland realised that immigration should be seen as an opportunity.

The role of the state
Even as the government cuts public spending there’s little desire to curb the role of the state. If Finland manages to transition to the much-discussed knowledge economy while retaining its strong public-sector services, this will be a
major triumph.

Self-confidence
Despite its economic difficulties Finland has much to be proud of: beautiful landscapes, great architecture, enviable public services, high quality of life, and, in Helsinki, one of the world’s most liveable cities. Yes, Finnish reticence can be charming but a bit of self-confidence can go a long way.

The scorecard

The economy is the most pressing concern. While past periods of hardship served to bring the country together, the current situation risks fomenting division between old and young, urban and rural, and Finland and the rest of the world. In most other respects, however, Finland is punching well above its weight.Grade: B–